As you probably know, the Federal Deposit Insurance Corporation (more commonly known as the FDIC) automatically provides insurance for up to $250,000 (per person, per financial institution / bank) of money deposited into a bank. That means that in the event of a natural disaster or bank collapse, your money is safe. Since the insurance is from the government, it’s not backed by a private corporation, so it will be there no matter what, unless the government were to fail (in which case you probably have bigger issues to worry about).
So bank accounts are FDIC insured. But what about safe deposit boxes in a bank’s vault?
Are safe deposit boxes insured by the FDIC?
The short answer is no. Safe deposit boxes are NOT FDIC insured. That means that in the event of a disaster, the contents of your safe deposit box may not actually be as safe as you think. The contract you signed when you leased the box likely says the bank is not liable if the contents are ruined, perhaps by something like a hurricane or flood. Hurricane Katrina destroyed at least 8,000 safe deposit boxes in 2005, so it can happen. (Source)
Even though there’s no FDIC insurance, the bank itself may have some limited insurance. Check your contract, because they might at least refund the charge of the box’s lease to you. (Obviously, it doesn’t make sense to keep your contract in the deposit box!)
However, if a bank fails, they are legally obligated to return the contents of your safe deposit box to you. According to the FDIC website, in the event of a bank’s collapse, your possessions from the safe deposit box ought to be available for you to pick up from the bank on the next business day. (Source)
Of course, that doesn’t mean you should avoid safe deposit boxes. In most ways, keeping valuable papers or other items secure in a bank vault will be safer than keeping them at home, especially if you don’t have a good home safe in your house. You may also be able to get a rider on your homeowner’s or renter’s insurance policy to cover safety deposit box contents. Your standard policy may or may not cover it, but if it does, there’s likely a $1,000 limit.
If you’re considering keeping money in a vault, don’t do it. By putting it into an actual bank account, you’ll not only gain FDIC insurance coverage on it, you’ll also receive interest. Also, don’t keep your will in the bank. Although it seems to make sense, it will require a court order to open your vault to get at the will after your death.